Efficiency savings way off target

Efficiency savings way off target

April 27, 2009 4:12 PM

Since the Budget announcement last week, most of Alistair Darling’s predictions have been found to be well wide of the mark. His contention that the UK economy will have contracted by 1.6% in the first quarter of this year was undermined almost immediately by the ONS; his borrowing projections were described as ‘optimistic’ by the IMF, a bureaucratic euphemism for ‘laughable’.

And these weren’t the only suspect figures in the budget. Much of Darling’s planned recovery for the Government’s finances relies on the progress of the Government’s efficiency drive, a programme that – Darling claimed – had already saved £26.5bn since 2004, exceeding a £21.5bn target set following the Gershon report.

However, in 2007 the National Audit Office (NAO) conducted a progress review into these efficiency savings. By this stage of the programme Government departments were claiming to have reached £13.3bn in savings. But the NAO concluded that only £3.1bn of this total was actual “real-deal” savings that “fairly represented the efficiencies made”. So when the Government claims that they have exceeded its target of £21.5bn by £5bn, then it’s difficult to take the assertion with much confidence.

It seems that departments have introduced quick-fix measures to improve efficiency, breeding counter-intuitive results. The NAO report (‘Efficiency Programme: A Second Review of Progress’) reveals in one section that hospitals were discharging people early in order to improve efficiency figures. But, typical of such quick-fix measures, “the proportion of emergency readmissions within 28 days of discharge has been rising year-on-year...during the period of the Efficiency Programme”. So short term efficiency measures actually ended up making hospitals more inefficient, reduced the quality of the service provided and potentially cost the taxpayer more.

A good case of how Government ‘efficiencies’ can easily end up costing the taxpayer more is the Department for Transport’s 2007 plan to save £57 million through coordinating back room services between the DVLA and DSA. After much hassle the system changes ended up costing £81 million, with any potential savings drowned out for years.

Similarly, the Ministry of Defence’s ‘Red Dragon’ project aimed to introduce modern aviation repair facilities to some bases in Wales, in the name of efficiency. It was supposed to save £263 million, but has ended up costing the taxpayer £113 million. Again, the taxpayer will see no savings, only further costs, for some time to come. The allure of ‘technology’ and ‘improved management’ – the magic bullets that are fall under the label ‘efficiencies’ - will always be fraught with danger, liable to cost the taxpayer rather than benefit them, and any announcement about ‘efficiency’ savings should be treated with a healthy dose of scepticism.

Take for instance the Treasury’s own ‘Operational Efficiency Programme’ document from earlier this month, five years since Gershon and two since the NAO’s progress review. One of its key recommendations for improving efficiency is that:

“value for money, including operational efficiency, should be regularly discussed with secretaries of state at the Ministerial Committee on Public Services and Public Expenditure”

How can this be a key recommendation to a 12 year old Government that has made so much of its efficiency savings so far? Common sense tells us that this should be standard practice and that if it isn’t then it’s bordering on ludicrous. If secretaries of state do not discuss value for money at every opportunity then how can people be expected to believe that ‘the Government has identified and made £26.5 billion in efficiency savings’ since 2004?

Since the Budget announcement last week, most of Alistair Darling’s predictions have been found to be well wide of the mark. His contention that the UK economy will have contracted by 1.6% in the first quarter of this year was undermined almost immediately by the ONS; his borrowing projections were described as ‘optimistic’ by the IMF, a bureaucratic euphemism for ‘laughable’.

And these weren’t the only suspect figures in the budget. Much of Darling’s planned recovery for the Government’s finances relies on the progress of the Government’s efficiency drive, a programme that – Darling claimed – had already saved £26.5bn since 2004, exceeding a £21.5bn target set following the Gershon report.

However, in 2007 the National Audit Office (NAO) conducted a progress review into these efficiency savings. By this stage of the programme Government departments were claiming to have reached £13.3bn in savings. But the NAO concluded that only £3.1bn of this total was actual “real-deal” savings that “fairly represented the efficiencies made”. So when the Government claims that they have exceeded its target of £21.5bn by £5bn, then it’s difficult to take the assertion with much confidence.

It seems that departments have introduced quick-fix measures to improve efficiency, breeding counter-intuitive results. The NAO report (‘Efficiency Programme: A Second Review of Progress’) reveals in one section that hospitals were discharging people early in order to improve efficiency figures. But, typical of such quick-fix measures, “the proportion of emergency readmissions within 28 days of discharge has been rising year-on-year...during the period of the Efficiency Programme”. So short term efficiency measures actually ended up making hospitals more inefficient, reduced the quality of the service provided and potentially cost the taxpayer more.

A good case of how Government ‘efficiencies’ can easily end up costing the taxpayer more is the Department for Transport’s 2007 plan to save £57 million through coordinating back room services between the DVLA and DSA. After much hassle the system changes ended up costing £81 million, with any potential savings drowned out for years.

Similarly, the Ministry of Defence’s ‘Red Dragon’ project aimed to introduce modern aviation repair facilities to some bases in Wales, in the name of efficiency. It was supposed to save £263 million, but has ended up costing the taxpayer £113 million. Again, the taxpayer will see no savings, only further costs, for some time to come. The allure of ‘technology’ and ‘improved management’ – the magic bullets that are fall under the label ‘efficiencies’ - will always be fraught with danger, liable to cost the taxpayer rather than benefit them, and any announcement about ‘efficiency’ savings should be treated with a healthy dose of scepticism.

Take for instance the Treasury’s own ‘Operational Efficiency Programme’ document from earlier this month, five years since Gershon and two since the NAO’s progress review. One of its key recommendations for improving efficiency is that:

“value for money, including operational efficiency, should be regularly discussed with secretaries of state at the Ministerial Committee on Public Services and Public Expenditure”

How can this be a key recommendation to a 12 year old Government that has made so much of its efficiency savings so far? Common sense tells us that this should be standard practice and that if it isn’t then it’s bordering on ludicrous. If secretaries of state do not discuss value for money at every opportunity then how can people be expected to believe that ‘the Government has identified and made £26.5 billion in efficiency savings’ since 2004?

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